Fed Moves on ATM Fraud : Rule on Customer Receipts Amended to Thwart Thieves

Consumers who use bank automated teller machines will be better protected from fraud because of a recent ruling by the Federal Reserve Board.

The Fed, which regulates bank holding companies and some state-chartered banks, voted Wednesday to allow banks to drop the last digits from customers’ account numbers on automated teller machine receipts. The Fed took the action to protect consumers and banks from criminals who use the account numbers on discarded receipts to make fraudulent withdrawals.

Fed regulations require banks to provide ATM users with receipts that have a unique code that identifies the customer. Many banks met this requirement for unique identification by placing customers’ account numbers on the receipt. Recently, however, this practice has enabled criminal groups to counterfeit ATM cards.

Generally, one person close to the ATM watches the customer enter his or her personal identification number and another retrieves the receipt from the trash. The criminals then make their own plastic cards with magnetic stripes.

“It’s fairly easy to do. Organized crime has the capability to do it,” said Viveca Ware, associate director of bank operations at the Independent Bankers Assn. of America, a trade group.

“There has been a tremendous amount of this type of fraud,” Ware said. “Some banks on the West Coast have lost hundreds of thousands of dollars over a very short period of time.”

To counter this security threat, the Fed voted to drop the requirement that a receipt uniquely identify a customer’s account or card. The Fed’s staff found that the change would not substantially diminish consumer protections.

Separately, the Fed voted to amend the Truth in Lending Act to require banks offering “reverse mortgages” to provide new disclosures, primarily about the potential cost of the transaction. In a reverse mortgage, the creditor makes payments to the homeowner until the owner moves or dies. The lender relies on the home’s future value for repayment.

The amendments also require lenders offering mortgages with unusually high interest rates or fees to provide borrowers with cost information about the transaction and warn about the possible loss of their home. The rule applies to mortgages with interest rates at least 10 percentage points above the yield on Treasury securities of equal maturity or fees that exceed 8% of the loan amount.